USD/JPY is the case of the interest and yield curve rivalries between the BOJ and the FED. The FED is purposefully driving down the DXY by a high balance sheet and reinvestment of proceeds, by holding FED Funds at 40 since July 2016 and 36 – 40 since December 2015. In currency price movement, the result is s slow and dead price drip but overall meaningless to effect a real market price. The result overall is a lower DXY and barely 1% GDP as high money balances negatively correlate to economic data. At 40 FED Funds effective, USD yields remain on the floor with no end in sight and no end in sight to economic recovery and a USD rise.
The BOJ counters the FED by holding 10 year JGB’s at zero to drive up short term yields and in turn to drive USD/JPY higher. Japanese 3 month yields are 50 basis points from USD yields, 80 basis points to the 1 year, 100 basis points to the 2 year. The USD interest rate corridor from 3 month to 2 year is 57 basis points and held steady around 55 for many many months while the Japanese corridor is currently 12. Not sure the cost to buy 50 and 60 basis points inside the promise of higher inflation and a zero GDP print last quarter against 0.2 annualized.
USD/JPY Most vital breaks to travel higher are found at 103.14, 103.38 and 103.51. All lines are dropping by the day. Most vital break points to consider 103.00’s are located at 101.70 and 101.66 then 102.18. Next above points to see 101.66 and 70 is located at 101.22 and 101.28 based on the 100.98 close. Supports below are found at 100.90, 100.78 then a drop off to 100.37 and 100.18. USD/JPY 100.78 is crucial to the downside. Until 103.00’s break, any rises in USD/JPY are corrections in the larger picture. Intraday, USD/JPY is middle range and best long targets on a price drop is 101.20 to 101.30’s.
Brian Twomey, Inside the Currency Market, btwomey.com